Equity Markets Spooked by Ramped-Up Trade War
by Sequoia Financial Group
by Sequoia Financial Group
Until last Friday morning, it was business as usual in financial markets. The S&P 500, an index of large US companies, was up 0.7 per cent week-to-date until President Trump announced on Truth Social an additional 100 per cent tariff on Chinese imports and new export controls on critical software. The S&P 500 embarked on a steady decline, closing the day down 2.7 per cent and down 2.4 per cent for the week.
Trump’s announcement was in response to one by Beijing that revealed plans to implement a licensing program around rare earth minerals. Under the program, any company that intends to sell products containing even trace amounts of Chinese rare earths would need approval to do so. This requirement would apply globally, even to a foreign company selling to another foreign company. Certain rare earths are used to make magnets included in high-tech products. Apple, for example, includes neodymium in its AirPods. While the US has neodymium resources, China controls ~80 per cent of the global supply.
The volatile week emphasizes the benefits of a diversified portfolio. The Bloomberg US Aggregate Bond Index, an index of high-quality bonds, returned +0.3 per cent over the week. Most of that return came on Friday, when the President’s social media post renewed concerns about recession. International equity markets equities fared slightly better than US counterparts, with Developed International equities down 1.9 per cent and Emerging Market equities down 0.7 per cent. Gold had another great week, returning 2.3 per cent, and is up 51.5 per cent this year. The yellow metal continues an historic run, having reached $4,000/ounce for the first time last week.
Talks of the “debasement trade” helped lift the price of gold. Debasement refers to a government’s incentive to grow out of a fiscal deficit by inflating its currency. Higher inflation would likely lead to greater nominal GDP growth over time, and thus greater federal tax revenue. Tax receipts would grow faster than interest expenses, which are fixed over specified periods. While this might improve the federal deficit, debasement would erode real returns for other assets. Gold has attracted significant investment flows recently, given the metal’s ability to maintain its real value.
Inflows into gold are also a sign the market is concerned about the possibility of recession. Quarterly earnings season kicks off this week with US mega banks, which will provide a sneak peek into the health of the economy. Historically low net loan charge-offs in recent quarters have indicated remarkable resilience, but investors will soon see whether that is still the case. JPMorgan, the largest bank by total assets, reports earnings on Tuesday.
Sources:
https://miningdigital.com/supply-chain-management/neodymium-the-rare-earth-powering-modern-industry
https://www.cnbc.com/2025/10/10/debasement-trade-gold-bitcoin-stock-market-risks.html
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